OT: Sole proprietor vs incorporating

I've been freelancing in L.A. on and off for many years, and periodically I'm asked whether I want to be paid directly or 'through my corporation'. So far I've operated only as a sole proprietor and had no problems with it, but I know that a lot of freelancers do incorporate.

I will of course seek the advice of a qualified accountant before I decide whether or not to incorporate, but from the perspective of working freelance editors, would anyone care to share their experience with incorporating; the plusses or minuses or overall value of taking that step?

INCORPORATE!!!!!! it protects your personal assests in event something unforseen should occur.

i got sued by an extremely unethical gear vendor about 10 years ago (dont even get me started on THAT story!) and one day found my personal checking account siezed - had to live on cash for about 4 years to protect liquidity. HUGE PAIN IN THE ASS!!!!! still recovering from that.

did i happen to mention you should incorporate? an LLC is generally the simplest way to go (at least here in texas, not sure about CA)

I will be incorporating as soon as this production ends. I now no longer am just a freelance editor, but becoming a one man post facility (minus audio mixing) so I find that I need to have a company.

I don't disagree with Shane or Wayne.

However, if you tend to work with the same people on a freelance basis, and you can trust them...which I realize that can change at the drop of a hat...you might want to look at it from a tax perspective as well as from the personal asset protection perspective.

There are some financial aspects to incorporating. My accountant and I looked at it this past year, and although I'm doing well in my market, one person is harder to "incorporate" and gain the tax advantage of incorporating. If my business continues to grow at it's current rate I'll probably wait at least two years. I may wait until my husband's kids all turn 18, and then we'll incorporate together. Our businesses are similar enough that incorporating together actually makes sense. (we can't really mix our assets until the kids are legal adults...that's a whole big can o' worms.)

That's all. Talk to the accountant. See what the tax advantages/disadvantages are. Weigh that against protecting your personal assets.

All my clients are good folk that I've known for over 10 years. Yes, there is always risk, but for the time being, in my case, the risk is worth it because I don't gain enough of a financial or tax benefit incorporating quite yet, and the rules of incorporation can create extra work and more hurdles. I'd rather wait and incorporate with my husband and only have one set of hurdles for the both of us.

But Wayne's experience is unfortunately not unusual, and if you feel you need to protect yourself from your clients and vendors, by all means, the cost and extra effort is likely worth it, with or without direct financial benefit.

deb

Depends on what state you live in. Ask an industry accountant in YOUR MARKET.

Sole proprietorship and partnerships are subject to unlimited personal liability when it comes to business debt. Creditors of the business can hold the owners of the business personally liable for debt and can move to seize the proprietor's or partner's home, savings or other personal assets. * In Florida, that liability is limited by the state?s homestead rights laws, preventing creditors from seizing an owner?s home, which is one of the main reasons I went with Sole Proprietorship (living in Florida).

Maintaining a corporation requires more paperwork and record keeping than sole proprietorships. Each individual state has its own legal procedures and regulations for forming and maintaining a corporation in good standing.

I personally am a Sole Proprietor (by choice) and I selectively deal with cool clients (by choice). I have an EIN and I have a ficticious business name (DBA). The KEY here is I have NO DEBT related to my company so being sued is not a concern for me. Pay cash or pay your bills on time and you will have no problems with your debt.

- Joey

When life gives you dilemmas...make dilemmanade.

the last line of joeys post makes a TON of sense if someone plans to forever remain a sole freelancer of a certain size or judt do freelance in addition to your day job - and thats great way to go about things!

but if you intend to GROW your business it often becomes innevitble that you will incur some degree of debt just in managing your growth. and "debt" protection alone is not the reason to incorporate. as is often said "its not for the things you CAN predict, its for the things you CANT"

and like weve all said it depends on your states rules, but an LLC is WAY simpler to administer than a proper INC. in TX, a proper INC is WAY WAY WAY OVERKILL for a small business.


another thing youre going to want to look into is the various degree of business insurance...

Agree with Wayne and Joe.

I run a single proprietor business and have no interest in growing. I have more than enough work for myself and deal with clients recommended or that I know. Additionally, after script and storyboard signoff, I get clients to sign a contract and then I get paid out to 90% of all production costs with a 10% holdout to final cut.

Like Joe, I pay my bills and pay as I go. And tomorrow, I pick up a set of Lite Panels©. Oh happy day.

Jamie

Way to go, Jamie!

That's what I am talking about. My Sole Proprietorship merely supplements my full time job that supplies my family with a full company benefits package. If I should get big enough where I don't need that full time gig and I can do everything from my home studio (six figures or more ), I would then consider an LLC or something more structured for protection. For now, I am way good

Have fun with the lite panels, Jamie

- Joey

When life gives you dilemmas...make dilemmanade.

LEGAL DISCLAIMER:
First, this is not legal or tax advice. You should consult an attornery or CPA based on your own circumstances...blah, blah, blah.

The main advantage to incorporating is, as George Harrison so eloquently put it... "THE TAXMAN!" Uncle Creepy is your partner throughout this life, and when you kick he's first in line with his hand out - in fact, he's first in line ALL THE TIME. LLC's are NOT difficult to start or maintain (I know, I've been an LLC in Arizona since 2000 - I did mine on the web at www.incorporatetime.com - they have the necessary paperwork for every state) and as long as you use good record keeping, like Quickbooks, it makes filing taxes WAY less stressful (if such a thing is possible). Being incorporated means you are your own employee, and as such, just about everything you do is deductible AND provable. I love deductions, it's like making every dollar I spend do the work of five. A corporation is seen as a legal entity, existing on its own merits. It's a shelter that I strongly encourage you to use.

As a sole proprietor, Uncle looks long and hard at your return - my accountant informs me that of the thousands of small business audited each year, 60%+ are sole proprietors....yikes. I should note that I pay cash for everything, have no business debt and plan to keep it that way.

wow I am loving this thread, funny coinsidence: I had just hung up the phone with a local CPA to see what I needed to do to incorporate or open an official company (LLC, sole proprietor, INC or corporation...whatever I don't understand much of it) - so right after I hung up I paid my daily visit to LA Cafe and...there was this thread...haha..

so from what I've read, for a small company (one man shop out of my home) the best thing is a corporation...right?
I'm in Florida too-- where in Fla are you Grafixjoe?

Dont forget the $800 yearly LLC fee that is assessed in CA. every year before you pay any taxes. For most freelancing people with only moderate incomes, the financial savings of incorporating an LLC are negligable. The primary benefit is Limited Liability to protect your personal assets against lawsuits. Also, almost every deduction that is available to an LLC is also available to a sole propriator - the exception is health insurance.

Adam Duplay